State of the Economy

1
CHAPTER

Economic growth decelerated in 2008-09 to 6.7 per cent. This represented a decline
of 2.1 per cent from the average growth rate of 8.8 per cent in the previous five years
(2003-04 to 2007-08). The five years of high growth has raised the expectations of
the people. Few remember that during the preceding five-year period from 1998-99
to 2002-03 average growth was only 5.4 per cent, while the highest growth rate
achieved during the period was 6.7 per cent (in 1998-99). Per capita GDP growth,
a proxy for per capita income, which broadly reflects the improvement in the income
of the average person, grew by an estimated 4.6 per cent in 2008-09. Though this
represents a substantial slowdown from the average growth of 7.3 per cent per
annum during the previous five years, it is still significantly higher than the average
3.3 per cent per annum income growth during 1998-99 to 2002-03.

1.2 Despite the slowdown in growth, investment
remained relatively buoyant, growing at a rate higher
than that of GDP. The ratio of fixed investment to
GDP consequently increased to 32.2 per cent of
GDP in 2008-09 from 31.6 per cent in 2007-08. This
reflects the resilience of Indian enterprise, in the
face of a massive increase in global uncertainty and
risk aversion and freezing of highly developed
financial markets. A decline in all major elements of
private demand, including exports and consumption,
necessitated a compensating widening of the fiscal
deficit above the Fiscal Responsibility and Budget
Management Act (FRBMA) target. The new, higher
expenditures announced during the 2008-09 budget,
which would have been offset by greater revenue
mobilization, had to be supplemented by an
additional fiscal expansion. This got reflected in an
increase of 20.2 per cent in government final
consumption expenditure during 2008-09. The effect
of this and subsequent fiscal stimuli (e.g. excise
and service tax reduction) on private demand would
be expected to appear gradually with a lag. Needless
to say it is an imperative to return to the FRBM
targets for the fiscal deficit at the earliest, possibly
by 2010-11.
1.3 A noteworthy development during the year
was a sharp rise in Wholesale Price Index (WPI)
inflation followed by an equally sharp fall, with the
WPI inflation falling to unprecedented level of close
to zero per cent by March 2009. This was driven
largely by the rapid rise and equally rapid fall in
global commodity prices during January 2008 to
March 2009. Global food prices also went through
a similar cycle, but have not declined to the same
extent. Though domestic food prices are partially
delinked from global prices, these global
developments affected domestic prices to some
extent. Domestic food price inflation, as measured
by the WPI food sub-index, though declining,
remains much higher than overall inflation.
1.4 The global financial meltdown and
consequent economic recession in developed
economies have clearly been major factor in India’s
economic slowdown. Given the origin and dimension
of the crisis in the advanced countries, which some
have called the worst since the Great Depression,
every developing country has suffered to a varying
degree. No country, including India, remained
immune to the global economic shock.
 2 Economic Survey 2008-09

ECONOMIC GROWTH DURING 2008-09 slowdown in manufacturing could be attributed to

Overall GDP growth
1.5 The overall growth of GDP at factor cost at
constant prices in 2008-09, as per revised estimates
released by the Central Statistical Organisation (CSO)
(May 29, 2009) was 6.7 per cent. This is lower than
the 7 per cent projection in the Mid-Year Review
2008-09 (Economic Division, Department of
Economic Affairs (DEA), December 2008) and the
advance estimate of 7.1 per cent, released
subsequently by CSO in February 2009. With the
CSO drastically reducing their estimate of GDP from
agriculture (based on third advance estimates), and
given that the DEA’s 7 per cent estimate assumed
normal agricultural growth, it would have had to be
adjusted for any shortfall. The growth of GDP at factor
cost (at constant 1999-2000 prices) at 6.7 per cent
in 2008-09 nevertheless represents a deceleration
from high growth of 9.0 per cent and 9.7 per cent in
2007-08 and 2006-07 respectively (Table 1.1).
1.6 The deceleration of growth in 2008-09 was
spread across all sectors except mining & quarrying
and community, social and personal services. The
growth in agriculture and allied activities decelerated
from 4.9 per cent in 2007-08 to 1.6 per cent in 2008-
09, mainly on account of the high base effect of 2007-
08 and due to a fall in the production of non-food
crops including oilseeds, cotton, sugarcane and jute.
The production of wheat was also marginally lower
than in 2007-08.
1.7 The manufacturing, electricity and
construction sectors decelerated to 2.4, 3.4 and 7.2
per cent respectively during 2008-09 from 8.2, 5.3
and 10.1 per cent respectively in 2007-08. The
the combined impact of a fall in exports followed by
a decline in domestic demand, especially in the
second half of the year. The rise in the cost of inputs
during the beginning of the year and the cost of credit
(through most of the year) reduced manufacturing
margins and profitability. The growth in production
sectors, especially manufacturing, was adversely
affected by the impact of the global recession and
associated factors. The electricity sector continued
to be hampered by capacity constraints and the
availability of coal, particularly during the first half of
the year. As long as the coal sector remains a public
sector monopoly (the only remaining nationalized
sector), it could remain a bottleneck for accelerated
development of the power sector.
1.8 The construction industry consists of different
segments like housing, infrastructure, industrial
construction, commercial real estate, etc. While the
industry went through a boom phase with growth as
high as 16.2 per cent in 2005-06 and continued to
grow thereafter (albeit with moderation), the increase
in the costs of construction due to a rise in the prices
of inputs like steel and cement and interest costs
had started impacting the industry. In certain
segments of the industry, there was an excessive
price build up in the form of a speculative bubble,
related to limited supply of urban land for those
segments. The rise in interest rates and the slowdown
in housing loans also moderated demand. The double
squeeze on the costs, as well as the demand side,
and the fall in the liquidity in mid-September 2008
precipitated a sharp downturn in this sector. There
followed a period (in the second half of the year)
when demand had already moderated, but costs
remained high.

Table 1.1 : Rate of growth at factor cost at 1999-2000 prices (per cent)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Agriculture, forestry & fishing 10.0 0.0 5.8 4.0 4.9 1.6
Mining & quarrying 3.1 8.2 4.9 8.8 3.3 3.6
Manufacturing 6.6 8.7 9.1 11.8 8.2 2.4
Electricity, gas & water supply 4.8 7.9 5.1 5.3 5.3 3.4
Construction 12.0 16.1 16.2 11.8 10.1 7.2
Trade, hotels & restaurants 10.1 7.7 10.3 10.4 10.1 *
Transport, storage & communication 15.3 15.6 14.9 16.3 15.5 *
Financing, insurance, real estate &
business services 5.6 8.7 11.4 13.8 11.7 7.8
Community, social & personal services 5.4 6.8 7.1 5.7 6.8 13.1
Total GDP at factor cost 8.5 7.5 9.5 9.7 9.0 6.7
Source : Central Statistical Organisation.
* Trade, hotels & restaurants, transport & communication (together) grew at 9 per cent, 2008-09.

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1.9 The higher growth in community, social and
personal services during 2008-09 was mainly due to
an expansionary fiscal policy that was reflected in
the demand side of GDP as higher growth of
Government consumption expenditure.
Quarterly growth
1.10 The slowdown in growth of GDP is more
clearly visible from the growth rates over successive
quarters of 2008-09. In the first two quarters of 2008-
09, the growth in GDP was 7.8 and 7.7 per cent
respectively. The growth fell to 5.8 per cent in the
third and in the fourth quarters of 2008-09 (compared
to 9.3 and 8.6 per cent in Q3 and Q4 of 2007-08).
The third quarter witnessed a sharp fall in the growth
of manufacturing, construction, trade, hotels and
restaurants. Agriculture growth also turned negative
adding a further dampener. On the other hand,
community, social and personal services showed a
large increase from the second quarter, mainly due
to a step up in government expenditure. The last
quarter saw an added deterioration in manufacturing
due to the deepening impact of the global crisis and
a slowdown in domestic demand (Table 1.2).
Industry and infrastructure
1.11 Though growth of the industrial sector started
to slow down in the first half of 2007-08, the overall
growth during that year remained as high as 8.5 per
cent. The index of industrial production for the year
2008-09 points towards a sharp slowdown with
State of the Economy 3
growth being placed at 2.4 per cent. Manufacturing
growth was placed at 2.3 per cent in 2008-09 as
compared to 9.0 per cent in 2007-08. Mining grew at
2.3 per cent in 2008-09 as against 5.1 per cent in
2007-08 while electricity showed a deceleration in
growth from 6.4 per cent in 2007-08 to 2.8 per cent
during 2008-09. Slower growth in all use-based
categories, except consumer durables, contributed
to the deceleration in the industrial sector.
1.12 The performance of six core industries
comprising crude oil, petroleum refinery products,
coal, electricity, cement and finished steel (carbon)
grew at 2.7 per cent as compared to 5.9 per cent in
2007-08. The growth in index for crude oil turned
negative 1.8 per cent as compared to positive 0.4
per cent in 2007-08. There was a deceleration in the
growth of cement and finished steel reflecting the
negative sentiments in the construction and
manufacturing sectors.
Agriculture production
1.13 For three consecutive years (2005-06 to 2007-
08), foodgrain production recorded an average annual
increase of over 10 million tonnes. The total foodgrain
production in 2007-08 was estimated at 230.78 million
tonnes as against 217.3 million tonnes in 2006-07.
1.14 As per the third advance estimates, the
production of foodgrains in 2008-09 is estimated to
be 229.85 million tonnes. In the third advance
estimates, there is an improvement of 1.97 million
tonnes over the second advance estimates for 2008-

Table 1.2 : Quarterly estimates of GDP 2007-08 and 2008-09

(percentage change – y-o-y)
Sector(s) 2007-08 2008-09
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Agriculture, forestry & fishing 4.3 3.9 8.1 2.2 3.0 2.7 -0.8 2.7
Mining & quarrying 0.1 3.8 4.2 4.7 4.6 3.7 4.9 1.6
Manufacturing 10.0 8.2 8.6 6.3 5.5 5.1 0.9 -1.4
Electricity, gas & water supply 6.9 5.9 3.8 4.6 2.7 3.8 3.5 3.6
Construction 11.0 13.4 9.7 6.9 8.4 9.6 4.2 6.8
Trade, hotels, transport &
communication 13.1 10.9 11.7 13.8 13.0 12.1 5.9 6.3
Financing, insurance, real estate &
bus. services 12.6 12.4 11.9 10.3 6.9 6.4 8.3 9.5
Community, social & personal
services 4.5 7.1 5.5 9.5 8.2 9.0 22.5 12.5
GDP at factor cost (total 1 to 8) 9.2 9.0 9.3 8.6 7.8 7.7 5.8 5.8
Source : Central Statistical Organisation.

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 4 Economic Survey 2008-09

09 but the estimates are still lower than the target of
233 million tonnes set out for the year and also the
final estimates of 230.78 million tonnes for 2007-08.
1.15 The production of rice during 2008-09 is
expected to be 99.37 million tonnes and that of wheat
77.63 million tonnes. The estimates for rice
production are 2.68 million tonnes higher than the
final estimates for 2007-08. However, the estimates
for wheat production are marginally lower than the
final production figures for 2007-08.The production
of coarse cereals is expected to be 38.67 million
tonnes which is lower than the final estimates for
2007-08 by 2.1 million tonnes. The production of
pulses is expected to be 14.18 million tonnes, which
is 0.58 million tonnes lower than the final estimates
for 2007-08. The production of oilseeds (9 oilseeds)
during 2008-09 is placed at 28.1 million tonnes,
which is lower than the final estimates of 29.7 million
tonnes for 2007-08 and short of target of 31.7 million
tonnes set out for the year. The production of cotton
estimated at 232.68 lakh bales is short of the final
estimates of 258.84 lakh bales in 2007-08 but an
improvement over the second advance estimates.
The production of sugarcane during 2008-09 is
estimated at 289.2 million tonnes, which is lower
than the production of 348.2 million tonnes during
2007-08. The production of jute and mesta is also
expected to be lower than the production in 2007-
08. The stocks of wheat and rice in the Central pool
by end-March 2009 were 35 million tonnes, which
were more than double the buffer stock norms.
1.16 Overall, the third advance estimates for
agricultural crops point to a situation where the
production of foodgrains may be close to the level
achieved in 2007-08. However, there is a shortfall in
the case of non-food cash crops like sugarcane.
Aggregate demand and its composition
1.17 The most important contribution to demand
growth during the Tenth Five Year Plan period (2002-
07) had come from investment, while the external
trade made negligible or negative contribution. During
the Tenth Five Year Plan the contribution of gross
capital formation was higher than consumption.
1.18 This pattern changed in 2007-08 when the
growth on the demand side was driven mainly by
consumption (Table 1.3). The contribution of
consumption stood at 61.8 per cent while that of
gross capital formation at 55.7 per cent. In 2008-09
the contribution of consumption stood at 59.5.

Table 1.3 : Demand side growth in GDP, growth contribution and relative share
(figures in per cent at 1999-00 market prices)
Growth of GDP
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
GDP at market t prices 8.4 8.3 9.3 9.7 9.1 6.1
Consumption (pvt.) 5.9 5.2 7.1 6.3 8.5 2.9
Consumption (Govt) 2.6 3.6 6.2 5.5 7.4 20.2
Gross capital formation 17.6 21.8 19.5 13.2 14.7 na
Gross fixed capital formation 13.6 18.9 17.6 14.5 12.9 8.2
Change in stocks -8.0 140.1 61.9 5.4 51.7 2.9
Exports 9.6 27.2 17.6 21.1 2.1 12.8
Imports 13.8 22.2 41.1 24.5 6.9 17.9
Contribution to growth (per cent)
Consumption (pvt.) 45.1 38.8 46.3 38.7 53.8 27.0
Consumption (Govt) 3.6 4.8 7.1 5.8 8.0 32.5
Gross capital formation 52.4 71.3 63.8 45.6 55.7 na
Gross fixed capital formation 38.4 56.4 51.3 43.9 43.6 42.5
Net exports -6.3 10.1 -41.1 -13.2 -14.0 -29.5
Relative share (per cent)
Consumption (pvt.) 62.3 60.5 59.3 57.5 57.2 55.5
Consumption (Govt) 11.1 10.6 10.3 9.9 9.8 11.1
Gross capital formation 27.1 30.5 33.3 34.4 36.2 na
Source : Central Statistical Organisation.
Note : Does not add to 100 because only major items are included in the table.

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Consumption
1.19 The contribution of private consumption to
aggregate growth declined dramatically from 53.8
per cent in 2007-08 to 27 per cent in 2008-09. This
decrease was cushioned by an increase in the
contribution to growth by government consumption
expenditure from a level of 8 per cent in 2007-08 to a
level of 32.5 per cent in 2008-09. Consequently the
overall contribution of consumption demand to growth
was only marginally lower than that in 2007-08. This
helped cushion the fall in economic growth on
account of the worsening of the external trade
account.
1.20 The share of private consumption in GDP at
market prices has been on a declining trend during
2002-03 to 2008-09. It stood at 63.7 per cent in 2002-
03 and declined to around 57 per cent in 2007-08.
Private consumption expenditure had a share of 55.5
per cent of GDP in 2008-09 while government
consumption expenditure accounted for about 11 per
cent. The share of gross capital formation in the GDP
has been on a rising trend, increasing from 27 per
cent in 2003-04 to 36.2 per cent in 2007-08,
supported mainly by an increase in gross fixed
capital formation.
State of the Economy 5
Consumption basket
1.21 Private final consumption expenditure at
constant prices grew at 8.1 per cent per annum in
2007-08 as compared to 6.4 per cent in 2006-07.
This higher growth was attributable to higher
increase in growth in consumption expenditure on
food, beverages & tobacco, clothing and footwear,
and on miscellaneous goods and services that
neutralized the decrease in growth of consumption
expenditure on furniture, furnishings, medical care
and health services, transport and communication
(Table 1.4). The expenditure on food and beverages
constituted 42.3 per cent of total private consumption
expenditure followed by transport and communication
with a share of 16.3 per cent. The 1.1 per cent point
decline in share of food in 2007-08 from the 43.4 per
cent average of the previous three years is consistent
with the view that (via Engel elasticity) the poorer half
of the population may also be sharing in the growth.
Per capita income and consumption
1.22 The per capita income in 2008-09, measured
in terms of gross domestic product at constant
1999-2000 market prices, was Rs. 31,278. In 2007-
08 this stood at Rs. 29,901. Per capita consumption
in 2008-09 was Rs. 17,344 as against a level of

Table 1.4 : Private final consumption expenditure by items in domestic demand – annual
growth and share at 1999-00 prices (in per cent)
2003-04 2004-05 2005-06 2006-07 2007-08
Annual growth
Food, beverages & tobacco 4.7 0.9 7.4 4.6 6.4
Clothing & footwear -2.4 4.7 11.7 3.8 8.6
Gross rent, fuel & power 3.3 3.6 3.1 3.0 3.4
Furniture, furnishings etc. 8.1 12.2 11.6 11.6 9.9
Medical care & health services 3.3 12.5 11.0 9.5 7.3
Transport & communication 11.4 10.2 -0.4 8.8 7.4
Recreation, education & cultural services 12.0 13.9 11.4 12.9 12.2
Miscellaneous goods & services 9.5 12.4 11.8 8.8 17.6
Total private consumption 6.0 5.5 6.8 6.4 8.1
Share of total (per cent)
Food, beverages & tobacco 45.5 43.5 43.8 43.0 42.3
Clothing & footwear 5.1 5.1 5.3 5.2 5.2
Gross rent, fuel & power 10.7 10.5 10.2 9.8 9.4
Furniture, furnishings etc. 3.4 3.6 3.8 4.0 4.0
Medical care & health services 5.1 5.4 5.6 5.8 5.7
Transport & communication 16.4 17.2 16.0 16.4 16.3
Recreation, education & cultural services 4.0 4.3 4.5 4.8 5.0
Miscellaneous goods & services 9.8 10.4 10.9 11.1 12.1
Total Private Consumption 100.0 100.0 100.0 100.0 100.0
Source : Central Statistical Organisation.

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 6 Economic Survey 2008-09

Figure 1.1 : Growth in per capita GDP & consumption

9
8
7
per c en t

6
5
4
3
2
1
2 0 0 2 -0 3 2 0 0 3 -0 4 2 0 0 4 -0 5 2 0 0 5 -0 6 2 0 0 6 -0 7 2 0 0 7 -0 8 2 0 0 8 -0 9
p e r c a p c o n s u m p tio n per cap G D P

Rs. 17,097 in 2007-08. While there has been an
increase in levels of per capita income and
consumption, there has been a perceptible slowdown
in their growth rate (Figure 1.1). The growth in per
capita GDP decelerated from 8.1 per cent in 2006-
07 to 4.6 per cent in 2008-09, while the per capita
consumption growth declined from 6.9 per cent in
2007-08 to 1.4 per cent in 2008-09.
Savings and investment
1.23 A notable feature of the growth of the Indian
economy from 2002-03 has been the rising trend in
the gross domestic capital formation (GDCF). Gross
capital formation (GCF), which was 25.2 per cent of
the GDP in 2002-03, increased to 39.1 per cent in
Table 1.5 : Ratio of savings and investment to GDP (% at current market prices)
2007-08. Much of this increase is attributable to a
rise in the rate of investment by the corporate sector.
The rise in the rate of investment has been on account
of various factors, the most important being the
transformation in the investment climate, coupled
with an optimistic outlook for the growth prospects
for the Indian economy.
Gross domestic savings
1.24 The growth in capital formation in recent years
has been amply supported by a rise in the savings
rate. The gross domestic savings as a percentage
of GDP at current market prices stood at 37.7 per
cent in 2007-08 as compared to 29.8 per cent in
2003-04 (Table 1.5). Private sector savings dominated

2003-04 2004-05 2005-06 2006-07 2007-08

Gross domestic saving 29.8 31.7 34.2 35.7 37.7
Public sector 1.1 2.2 2.4 3.3 4.5
Private sector 28.7 29.5 31.8 32.4 33.2
Household sector 24.1 22.8 24.1 24.1 24.3
Financial saving 11.4 10.1 11.7 11.7 11.7
Saving in physical assets 12.7 12.7 12.4 12.4 12.6
Private corporate sector 4.6 6.7 7.7 8.3 8.8
Gross capital formation (investment) 27.6 32.1 35.5 36.9 39.1
Public sector 6.3 6.9 7.6 8.0 9.1
Private sector 19.6 23.4 26.1 27.2 28.5
Corporate sector 6.8 10.8 13.7 14.8 15.9
Household sector 12.7 12.7 12.4 12.4 12.6
Gross fixed capital formation 25.0 28.4 31.0 32.5 34.0
Stocks 0.9 1.9 2.6 2.6 3.6
Valuables 0.9 1.3 1.2 1.2 1.1
Saving investment gap
Public sector -5.3 -4.7 -5.2 -4.6 -4.6
Private sector 9.2 6.1 5.7 5.2 4.7
Household sector 11.4 10.1 11.7 11.7 11.7
Private corporate sector -2.2 -4.0 -6.0 -6.5 -7.0
Source : Central Statistical Organisation.
Note : Totals may not tally due to adjustment for errors and omissions

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Figure 1.2(i) : Sectoral share in
domestic savings (2007-08)
Private Public
Corporate Sector
Sector 12%
23%
Household
Sector 65%
the total savings in 2007-08 and were at 33.2 per
cent of GDP. Of this, the household sector savings
was 24.3 per cent of GDP while the private corporate
sector accounted for 8.8 per cent. Savings by the
public sector was 4.5 per cent of GDP. The
composition of savings by sectors as percentage of
the gross domestic saving is shown in Figure 1.2(i)
Figure 1.2(ii)
Capital formation
1.25 The gross capital formation (adjusted) as a
percentage of GDP steadily moved up from 27.6 per
cent in 2003-04 to 39.1 per cent of GDP in 2007-08.
There has been an increase in the rate of investment
in both the public and private sectors. For the public
sector, the gross investment rate rose from 6.3 per
cent in 2003-04 to 9.1 per cent in 2007-08 and for
the private sector from 19.6 per cent in 2003.-04 to
28.5 per cent in 2007-08. Within the private sector,
the share of the household sector has remained at
the same level. However, the share of the corporate
sector steadily increased to touch 15.9 per cent of
GDP in 2007-08 The sectoral composition of gross
domestic capital formation is shown in Figure 1.2ii.
1.26 It is also pertinent to note that the overall
increase in investment has come about mainly from
a rise in the rate of gross fixed investment. Gross
fixed investment which was 25.0 per cent of GDP in
2003-04 increased to 34.0 per cent in 2007-08.
1.27 The saving investment gap in the public sector
stood at (-) 5.3 per cent in 2003-04 that moderated
to (-) 4.6 per cent in 2007-08. This reflected the
narrowing gap between public sector capital formation
and public sector gross domestic savings. For the
household sector the gap has remained more or less
constant reflecting no major change in the saving
investment balance. In the case of the private
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State of the Economy 7
Figure 1.2(ii) : Sectoral share in gross
capital formation (2007-08 )
Valuables
Private Public
3%
Corporate Sector
Sector 23%
41%
Household
Sector 33%
corporate sector however, the saving investment gap
widened to (-) 7.0 per cent in 2007-08 reflecting the
high rate of capital formation over and above their
internal savings.
Sectoral investment
1.28 The overall rate of growth of capital formation
at constant prices was 15.6 per cent in 2007-08 as
compared to 13.9 per cent in 2006-07. The growth
rate of gross capital formation in different sectors is
indicative of the direction of fresh investment. The
rate of growth of capital formation during 2007-08
(as compared to 2006-07) increased in mining and
quarrying, transport storage and communication,
financing, insurance, real estate and business
services and community personal and social
services. However, the growth rate of gross capital
formation slowed down during 2007-08 (in agriculture,
manufacturing, electricity, gas and water supply,
construction, and trade, hotels and restaurants)
(Table 1.6).
1.29 At the disaggregated level, within the
manufacturing sector there was an increase in the
rate of growth of gross capital formation in the
registered manufacturing sector, whereas in the
unregistered manufacturing sector the rate of growth
of gross capital formation declined to 2.9 per cent in
2007-08 as against a growth of 21.9 per cent in 2006-
07. Within the trade, hotels and restaurants, trade
recorded a decline in the rate of growth of gross
capital formation to 1.2 per cent in 2007-08 as against
a level of 41.7 per cent in 2006-07. Within the group
transport, storage and communication, railways
recorded an increase to 24.8 per cent in 2007-08
from a level of 14.7 per cent in 2006-07. However,
storage saw negative growth in its capital formation
in 2007-08.
 8 Economic Survey 2008-09

Table 1.6 : Sector investment growth rates (at constant 1999-00 prices)
2003-04 2004-05 2005-06 2006-07 2007-08
Agriculture, forestry & fishing -3.8 8.0 14.2 10.9 8.2
Agriculture -4.2 9.7 14.8 11.0 8.3
Forestry & logging 80.3 -47.4 25.6 19.3 -3.5
Fishing -10.4 9.5 9.5 9.5 9.4
Mining & quarrying 69.2 53.9 0.6 -5.8 25.5
Manufacturing 22.5 54.6 22.7 17.8 13.3
Registered 13.9 64.1 32.7 16.3 17.3
Unregistered 41.6 37.8 1.3 21.9 2.9
Electricity, gas & water supply 22.8 -8.4 36.1 15.2 3.6
Construction 27.6 19.9 29.9 25.4 16.1
Trade, hotels & restaurants 167.4 4.9 -5.0 31.0 4.9
Trade 228.6 -3.9 -6.3 41.7 1.2
Hotels & restaurants 56.4 38.4 -1.7 3.8 17.3
Transport, storage & communication -2.9 14.5 41.7 11.6 29.6
Railways 5.2 3.4 12.8 14.7 24.8
Transport by other means 10.2 16.0 -10.6 9.6 43.0
Storage -12.2 -124.6 -158.6 8.5 -39.4
Communication -47.1 36.1 348.1 13.0 16.4
Financing, insurance, real estate &
business services 0.8 -11.4 19.4 1.1 15.6
Banking & insurance 71.7 -35.6 69.2 35.2 21.0
Real estate, ownership of dwellings &
business services -1.4 -10.1 17.5 -0.8 15.2
Community, social & personal services 2.9 22.6 -0.9 13.1 21.8
Public administration & defence -0.7 18.4 25.0 13.0 23.9
Other services 8.5 28.3 -33.6 13.4 16.8
Total 12.9 22.3 20.0 13.9 15.6

Globalizaition of the Indian economy
1.30 The structure of the Indian economy has
undergone considerable change in the last decade.
These include increasing importance of external trade
and of external capital flows. The services sector
has become a major part of the economy with GDP
share of over 50 per cent and the country becoming
an important hub for exporting IT services. The share
of merchandise trade to GDP increased to over 35
per cent in 2007-08 from 23.7 per cent in 2003-04. If
the trade in services is included, the trade ratio is 47
per cent of GDP for 2007-08.
1.31 The rapid growth of the economy from 2003-
04 to 2007-08 also made India an attractive
destination for foreign capital inflows and net capital
inflows that were 1.9 per cent of GDP in 2000-01
increased to 9.2 per cent in 2007-08. Foreign portfolio
investment added buoyancy to the Indian capital
markets and Indian corporates began aggressive
acquisition spree overseas, which was reflected in
the high volume of outbound direct investment flows.
1.32 Another important dimension has been the
high degree of external dependence on imported
energy sources, especially crude oil with the share
of imported crude in domestic consumption
exceeding 75 per cent. A major change in
international crude prices is therefore bound to impact
the Indian economy, as happened in early 2008-09.
Impact of global developments
1.33 The subprime crisis that surfaced around
August 2007 had affected financial institutions in the
United States and Europe including the shadow
banking system comprising inter alia investment
banks, hedge funds, private equity and structured
investment vehicles. The collapse of the Lehman
Brothers in mid-September 2008 further aggravated
the situation leading to a crisis of confidence in the

website: http://indiabudget.nic.in
 State of the Economy 9
financial markets. The resulting heightened levels during a short duration necessitating reversal
uncertainty cascaded into a full-blown financial crisis of policy to deal with emergent situations.
of global dimensions that stymied prospects of an
1.37 Before the onset of the financial crisis, the
early recovery.
main concern of the policymakers was excessive
1.34 India could not insulate itself from the adverse capital inflows, which increased from 3.1 per cent of
developments in the international financial markets, GDP in 2005-06 to 9.3 per cent in 2007-08. While
despite having a banking and financial system that this led to increase in foreign exchange reserves
had little to do with investments in structured financial from US$ 151.6 billion at end-March 2006 to US$
instruments carved out of subprime mortgages, 309.7 billion at end-March 2008, it also contributed
whose failure had set off the chain of events to monetary expansion, which fuelled liquidity growth.
culminating in global crisis. WPI inflation reached a trough of 3.1 per cent in
October 2007, a month before global commodity price
1.35 The effect on the Indian economy was not
inflation zoomed to double digits from low single
significant in the beginning. The initial effect of the
digits. The rising oil and commodity prices,
subprime crisis was, in fact, positive, as the country
contributed to a significant rise in prices, with annual
received accelerated Foreign Institutional Investment
WPI peaking at 12.8 per cent in August 2008. The
(FII) flows during September 2007 to January 2008.
monetary policy stance during the first half of 2008-
This contributed to the debate on “decoupling,” where
09 was therefore directed at containing the prices
it was believed that the emerging economies could
rise.
remain largely insulated from the crisis and provide
an alternative engine of growth to the world economy. 1.38 The policy stance of the Reserve Bank of India
The argument soon proved unfounded as the global (RBI) in the first half of the year was oriented towards
crisis intensified and spread to the emerging controlling monetary expansion, in view of the
economies through capital and current account of apparent link between monetary expansion and
the balance of payments (BoP). The net portfolio inflationary expectations partly due to the perceived
flows to India soon turned negative as Foreign liquidity overhang. In the first six months of 2008-09,
Institutional Investors (FIIs) rushed to sell equity year-on-year growth of broad money was lower than
stakes in a bid to replenish overseas cash balances. the growth of reserve money (Figure 1.3i), The
This had a knock-on effect on the stock market and Government also took various fiscal and
the exchange rates through creating the supply- administrative measures during the first half of 2008-
demand imbalance in the foreign exchange market. 09 to rein in inflation.
The current account was affected mainly after
1.39 The key policy rates of RBI thus moved to
September 2008 through slowdown in exports.
signal a contractionary monetary stance. The repo
Despite setbacks, however, the BoP situation of the
rate (RR) was increased by 125 basis points in three
country continues to remain resilient.
tranches from 7.75 per cent at the beginning of April
1.36 The global crisis also meant that the economy 2008 to 9.0 per cent with effect from August 30, 2008.
experienced extreme volatility in terms of fluctuations The reverse-repo rate (R-RR) was however left
in stock market prices, exchange rates and inflation unchanged at 6.0 per cent (Figure 1.3ii). The cash

Figure
Figure 1.3 (i)1.3(i)
: Growth of M3 and M0of(Y-o-Y)
: Growth M3 and M0 (Y-o-Y) Figure 1.3(ii) : Repo
Figure and reverse
1.3(ii) : Repo repo and
rates reverse repo rates
33
10
28 9
8
23 7
per cent

6
per cent

18 5
4
13 3
2
1
8 0
Jul

Jul
Oct

Oct
Apr

Jun

Jan

Apr

Jun

Jan
Feb

Feb
Aug

Sep

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Dec

Mar

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Sep

Nov

Dec

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May

3
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Jul
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Oct
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Jan

Jun

Jan
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Apr
Feb

Feb
Aug

Sep

Nov

Dec

Aug

Sep

Nov

Dec
Mar

Mar
May

May

2007-08 2008-09
2007-08 M3 M0 2008-09 Reverse Repo Repo

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 10 Economic Survey 2008-09
reserve ratio (CRR) was increased by 150 basis points
in six tranches from 7.50 per cent at the beginning
of April 2008 to 9.0 per cent with effect from August
30, 2008.
Exchange rate developments
1.40 The surge in the supply of foreign currency
in the domestic market led inevitably to a rise in the
price of the rupee. The rupee gradually appreciated
from Rs. 46.54 per US dollar in August 2006 to Rs.
39.37 in January 2008, a movement that had begun
to affect profitability and competitiveness of the export
sector. The global financial crisis however reversed
the rupee appreciation and after the end of positive
shock around January 2008, rupee began a slow
decline.
1.41 A major factor, which affected the emerging
economies almost simultaneously, was the
unwinding of stock positions by the FIIs to replenish
cash balances abroad. The decline in rupee became
more pronounced after the fall of Lehman Brothers
in September 2008, requiring RBI intervention to
reduce volatility. It is pertinent to note that a
substantial part of the movement in the rupee-US
dollar rate during this period has been a reflection of
the movement of the dollar against a basket of
currencies. The rupee stabilized after October 2008,
with some volatility. With signs of recovery and return
of FII flows after March 2009, rupee has again been
strengthening against US dollar.
1.42 For the year as a whole, the nominal value of
the rupee declined from Rs. 40.36 per US dollar in
March 2008 to Rs. 51.23 per US dollar in March
2009, reflecting a 21.2 per cent depreciation during
the fiscal 2008-09. The exchange rate was Rs. 51.20
per US dollar in March 2009. The annual average
exchange rate during 2008-09 worked out to Rs.
45.99 per US dollar compared to Rs. 40.26 per US
dollar in 2007-08.
Monetary policy developments
1.43 The outflow of foreign exchange, as a fallout
of crisis, also meant tightening of liquidity situation
in the economy. To deal with the liquidity crunch
and the virtual freezing of international credit, the
monetary stance underwent an abrupt change in the
second half of 2008-09. The RBI responded to the
emergent situation by facilitating monetary expansion
through decreases in the CRR, repo and reverse-
repo rates, and the statutory liquidity ratio (SLR).
The repo rate was reduced by 400 basis points in
five tranches from 9.0 in August 2008 to 5.0 per cent
website: http://indiabudget.nic.in
beginning March 5, 2009. The reverse-repo rate was
lowered by 250 basis points in three tranches from
6.0 (as was prevalent in November 2008) to 3.5 per
cent from March 5, 2009. The reverse-repo and repo
rates were again reduced by 25 basis points each
with effect from April 21, 2009 (Figure 1.3ii). SLR
was lowered by 100 basis points from 25 per cent of
net demand and time liabilities (NDTL) to 24 per cent
with effect from the fortnight beginning November 8,
2008. The CRR was lowered by 400 basis points in
four tranches from 9.0 to 5.0 per cent with effect
from January 17, 2009.
1.44 The credit policy measures by the RBI broadly
aimed at providing adequate liquidity to compensate
for the squeeze emanating from foreign financial
markets and improving foreign exchange liquidity.
At the same time, it was necessary to ensure that
the financial contagion arising from the global financial
crisis did not permeate the Indian banking system.
These measures were therefore supplemented by
sector- specific credit measures for exports, housing,
micro and small enterprises and infrastructure.
1.45 The monetary measures had a salutatory
effect on the liquidity situation. The weighted average
call money market rate, which had crossed the LAF
corridor at several instances during the first half of
2008-09, remained within the LAF corridor after
October 2008. Since mid-2008-09, the growth in
reserve money decelerated after September 2008.
The deceleration in M0 was largely on account of
the decline in net foreign exchange assets (NFA) of
RBI (a major determinant of reserve money growth)
due to reduced capital inflows. On the other hand,
the net domestic credit (NDC) of the RBI expanded
due to an increase in net RBI credit to the Central
Government in the second half of the year. Taking
the year as a whole, broad money (M3) recorded an
increase of 18.4 per cent during 2008-09, as against
21.2 per cent in 2007-08. The money multiplier, which
is the ratio of M3 to M0 was 4.3 in end-March 2008
and increased to 5.0 in December 2008.
Fiscal developments
1.46 The extraordinary situation that emerged due
to the crisis had led to a sharp shrinkage in the
demand for exports. Domestic demand also had
moderated considerably leading to a downturn in
industry and in the services sector as seen in the
GDP growth, especially for the third and the fourth
quarters of 2008-09.
1.47 The situation necessitated a fiscal response
beyond the measures enunciated in the 2008-09
 State of the Economy 11
Budget, the roll-out and actual outlays, however, took measures were announced by the Finance Minister
place in the second half of 2008-09. These included during the discussions. These were of the order of
the payout of a part of the arrears to government 0.5 per cent of the GDP. The Finance Minister’s
employees, following the Sixth Pay Commission speech also indicated that an additional fiscal
Report and the debt relief (farm loan waiver) package stimulus of 0.5 per cent to 1 per cent of GDP as
to alleviate the debt burden of the distressed farmers. additional plan expenditure could be considered, if
By increasing the fiscal deficit, this expenditure, inter needed, to offset the shock induced declines in
alia, helped to sustain domestic demand. These were aggregate demand.
supplemented by further measures during December
1.50 Apart from the measures taken to restore and
2008 to February 2009 consisting of increased plan
revive the domestic economy, India continued to
expenditure, reduction in indirect taxes, sector-
engage actively at various international fora like the
specific measures for textiles, housing,
G-20 group of countries (of which India is a member)
infrastructure, automobiles, micro and small sectors
and at the multilateral institutional mechanisms on
and exports and authorization to specified financial
the range of issues that arose from the global financial
institutions like the India Infrastructure Investment
crisis. At the meeting in early April 2009, leaders of
and Finance Company Limited (IIFCL) to raise tax-
G-20 countries (including India), collectively
free bonds to fund infrastructure projects.
committed themselves to take decisive, coordinated
1.48 With the release of provisional actual data on and comprehensive action to revive growth, restore
expenditure for the Union Government for 2008-09 stability of the financial system, restart the impaired
and the revised estimates of GDP at market prices credit markets and rebuild confidence in financial
for 2008-09, the fiscal deficit to GDP ratio for 2008- markets and institutions.
09 works out to 6.2 per cent, while the revenue and
primary deficit are estimated to be 4.6 per cent and Credit
2.6 per cent respectively. Consequently, the fiscal 1.51 The intra-year changes in credit flow could
measures taken together provided a fiscal stimulus be attributed to several factors. The demand for bank
of about 3.5 per cent of GDP. Further, below the line credit increased sharply during April-October 2008
items can also be said to have contributed a stimulus as companies found that external sources of credit
of about 1.3 per cent of GDP, even though these were drying up in the wake of the global financial
merely offset the effect of the increase in the prices crisis. There was also a sharp increase in credit to
of oil and fertilizer imports on domestic income and oil marketing companies. However, towards the latter
demand. part of 2008-09, credit growth declined abruptly
1.49 The revenue and expenditure sides in the reflecting the slowdown of the economy in general
Interim Budget 2009-10, which was presented on and the industrial sector in particular (Figure 1.3iv).
February 16, 2009, were conditioned by the foregoing Working capital requirements also came down
developments. Fiscal deficit for 2009-10 was because of a decline in commodity prices and a
estimated to go up to 5.5 per cent of GDP, thus drawdown of inventories by the non-financial
providing a continuing stimulus, relative to 2008-09, companies. The demand for credit by oil marketing
of 2.8 per cent of GDP. Further tax reduction companies also moderated. In addition, substantially

Figure
Figure1.3(iii)1.3(iii)
: Stock price indices price indices
: Stock Figure 1.3(iv)1.3(iv)
Figure : Prime :lending
Prime ratelending
& non-food credit
rategrowth
& non-food credit growth
31 14.5
23000 7000
29
21000 14.0
6000
27
19000 5000
Nfc ( % y-o-y)

13.5
25
Sensex

17000
4000
15000 23 13.0
3000
13000 21
12.5
11000 2000
19
9000 1000 12.0
17
7000 0
Jul

Jul

15 11.5
Oct

Oct
Jun

Jan

Jun

Jan
Feb

Feb
Apr

Aug
Sep

Nov
Dec

Apr

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Sep

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Dec
May

May
Mar

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Apr

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Feb

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Apr

Oct

Mar
Jun

Aug

Sep

Jan

Jun

Aug

Sep

Jan

Feb
Jul

Nov

Dec

Jul

Nov

Dec

2007-08 2008-09 2007-08 2008-09

BSESensex Nifty Non food credit (NFC) PLR

website: http://indiabudget.nic.in
 12 Economic Survey 2008-09

lower credit expansion by private and foreign 1.54 A positive development was higher private
banks muted the overall flow of bank credit during transfers and software earnings and increase in non-
the year. resident deposit flows and foreign direct investment
vis-à-vis the corresponding period last year. Higher
1.52 On a full year basis, bank credit growth fell
FDI flows in 2008-09 were also a reflection of the
from 22.3 per cent in 2007-08 to 17.3 per cent in
confidence of foreign investors in the growth prospects
2008-09. Having regard to the structural rigidities
of the Indian economy.
associated with the money market, it was observed
that the average PLR did not show much variation. 1.55 Together with lower crude oil prices and
From 12.5 per cent in April 2008, it increased to decline in imports, the overall impact on the balance
13.9 per cent in September 2008 and thereafter of payments was somewhat muted. This is reflected
declined to 12.0 per cent in March 2009. in reserve decline of only US$ 20.4 billion on BoP
basis (excluding valuation change) during 2008-09
Balance of payments (April-December 2008). The total foreign currency
1.53 The overall balance of payments (BoP) assets (FCA) had declined from US$ 299.2 billion
situation remained resilient in 2008-09 despite signs on 31.3.2008 to US$ 241.4 billion on 31.3.2009,
of strain in the capital and current accounts, due to reflecting a fall of US$ 57.8 billion. However, more
the global crisis. During the first three quarters of than two-thirds of the decline in FCA was due to a
2008-09 (April-December 2008), the current account valuation change i.e. appreciation of US dollar
deficit (CAD) was US$ 36.5 billion (4.1 per cent of against the international currencies in which reserves
GDP) as against US$ 15.5 billion (1.8 per cent of are maintained. The foreign exchange reserves stood
GDP) for the corresponding period of 2007-08. The at US$ 252 billion at end-March 2009.
capital account balance declined significantly to US$
16.09 billion (1.8 per cent of GDP) as compared to
Trade
US$ 82.68 billion (9.8 per cent of GDP) during the 1.56 The adverse effect of the global financial crisis
corresponding period in 2007-08. was also felt on the export sector, first, on account

Figure 1.4 (i) :1.4(i)

Figure Foreign investment
: Foreign inflowsinvestment inflows Figure 1.4(ii) :1.4(ii)
Figure Foreign exchange reservesexchange reserves
: Foreign
315
11000
295
US $ billion

6000 275
$ Million

255
1000
235

-4000 215

195
-9000
Aug-07

Dec-07

Feb-08

Aug-08

Dec-08

Feb-09
Jun-07

Oct-07

Jun-08

Oct-08
Apr-07

Apr-08

175
May

May
Mar

Mar
Nov
Aug

Sep

Nov

Aug

Sep
Dec

Dec
Feb

Feb
Jun

Jan

Jun

Jan
Apr

Apr
Oct

Oct
Jul

Jul

Portfolio inflows Total Capital flows 2007-08 2008-09

Figure 1.4 (iii)1.4(iii)

Figure : Exchange:rateExchange
(Rupees / US$)rate (Rupees/US$) Figure 1.4 (iv) :1.4(iv)
Figure Trends in Exports
: Trendsand Imports
in Exports and Imports
53
30000
51
25000
49
US$ Million
Rs/ US $

47 20000
45
15000
43

41 10000
Mar
Sep

Sep
Jan

Jan
Nov

Nov
Jun

Dec

Jun
Feb

Dec

Feb
Jul

Jul
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Aug
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May

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39
May

May
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Sep
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Feb

Mar

Feb

Mar
Jun

Jan

Jun

Jan
Apr

Oct

Apr

Oct
Jul

Jul

2007-08 2008-09
2007-08 2008-09 Export s Import s

website: http://indiabudget.nic.in

of the drying up of international financing and trade
credit, followed by a fall in global demand.
1.57 During 2008-09, the growth in exports was
robust till August 2008. However, in September 2008,
export growth evinced a sharp dip and turned negative
in October 2008 and remained negative till the end
of the financial year. The continued decline in export
growth was due to the recessionary trends in the
developed markets where the demand had
plummeted. For the year as a whole, the growth in
merchandise exports during 2008-09 was 3.6 per
cent in US dollar terms and 16.9 per cent in rupee
terms (compared to 28.9 per cent and 14.7 per cent
respectively in 2007-08). The large difference in
growth in terms of the US dollar and in terms of the
rupee was on account of the depreciation of rupee
vis-à-vis US dollar during the year.
1.58 During the period (April-February) in 2008-09,
the main drivers of exports growth were engineering
goods and chemicals and related products.
Petroleum products and textile exports witnessed a
positive but low growth. However, handicrafts, primary
products and gems and jewellery exports registered
negative growth. The negative impact on the growth
of India’s exports becomes more evident from the
fact that merchandise exports to the United States,
which was the largest market, declined by 1.6 per
cent during 2008-09 (April-February). On the other
hand, merchandise exports to Asia (including
ASEAN) grew by 6.9 per cent and to Europe by
10.2 per cent during this period. India’s merchandise
exports to South Asian countries also declined by
5.2 per cent.
1.59 Import growth began to decline from October
2008 (with one month lag from the decline in export
growth) and was negative over the period January to
March 2009. For the year as a whole i.e. 2008-09,
the overall import growth was subdued at 14.4 per
cent in US dollar terms and 29 per cent in rupee
terms. Growth in POL and non-POL imports was
16.9 per cent and 13.2 per cent respectively (in US
dollar terms). During 2008-09 (April-February)
fertilizers and edible oils registered high import growth
to meet domestic demand. The growth in the imports
of POL was high in the first half of the year due to
the unusually high prices but moderated in the second
half of the year. The trade deficit increased from US$
88.5 billion (as per customs data) in 2007-08 to US$
119.1 billion in 2008-09.
1.60 The impact of global recession was relatively
less on India’s services exports till December 2008,
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State of the Economy 13
though the growth rate of services export moderated
to 16.3 per cent during April-December 2008-09. A
negative growth in insurance and a sharp fall in the
growth of travel services was registered during this
period. Software services grew at 26 per cent, while
financial services registered a robust growth of 45.7
per cent despite the global financial crisis and fall in
growth rate in world financial services exports.
Business services growth was, however at a lower
rate of 3.9 per cent.
Prices
1.61 A positive fallout of decline in demand and
fall in commodity prices due to the crisis was a sharp
decline in headline inflation, as indicated by the WPI,
which was 0.8 per cent at end-March 2009 on year-
on-year basis for all commodities. However, there
has been wide variation in the constituents of the
Index, with WPI Food Index (combined) showing
year-on-year inflation of 6.8 per cent at the same
point of time, which has been a cause for concern.
The average WPI inflation for 2008-09 was 8.4 per
cent as against 4.7 per cent in 2007-08. There has
also been significant variation in inflation rate in terms
of WPI and the Consumer Price Indices (CPIs).
Inflation rate as per Consumer Price Index for Rural
Labourers (CPI-RL) was 9.7 per cent and on CPI for
Industrial Workers (CPI-IW) was 8 per cent as of
end-March 2009. The average inflation on CPI-RL
and CPI-IW for the year 2008-09 was 10.2 and 9.1
per cent, respectively.
1.62 The implicit deflator for GDPMP defined as the
ratio of GDP at current prices to GDP at constant
prices is the most comprehensive measure of inflation
on an annual basis. Overall inflation, as measured
by the aggregate deflator for GDPMP, declined from
5.0 per cent in 2006-07 to 4.9 per cent in 2007-08
and is estimated at 6.2 per cent in 2008-09 as a
result of the higher inflation experienced during most
of the year.
Inclusive growth
1.63 Regardless of the impact of the global financial
crisis on India, the fact remains that some of the
challenges that India faces are of a continuing nature.
These inter alia include eradicating poverty, improving
its physical and social infrastructure, education and
creating productive employment opportunities. In
consonance with the commitment to ensure faster
social development and achieving an inclusive pattern
of growth, the government continued its focus on
several initiatives and programmes towards that end.
 14 Economic Survey 2008-09
1.64 Some of the major social sector initiatives for
achieving inclusive growth and faster social sector
development and to remove economic and social
disparities in the Eleventh Five Year Plan, include
the Bharat Nirman programme, Mid-day Meal
Scheme, National Rural Health Mission, Jawaharlal
Nehru National Urban Renewal Mission and the
National Rural Employment Guarantee Scheme
(NREGS). Central support for the social programmes
has continued to supplement efforts made by the
states.
1.65 Under NREGS, over four crore households
were provided employment in 2008-09. This is a
significant jump over the 3.39 crore households
covered under the scheme during 2007-08. Out of
the 215.63 crore person-days of employment created
under the scheme during this period, 29 per cent
and 25 per cent were in favour of SC and ST population
respectively. 48 per cent of the total person-days of
employment created went in favour of women. The
agriculture debt waiver and relief scheme
implemented during the year was able to restore
institutional credit to farmers and helped to support
demand and revive investment in the rural and the
agriculture sector.
SUMMING-UP
1.66 The fallout of the global financial crisis on the
Indian economy has been palpable in the industry
and trade sectors and has also permeated the
services sector. While some segments, especially
the export-oriented industries, suffered during the
second half of the year, the Indian economy has
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withstood the adverse global economic situation
and posted a growth rate of 6.7 per cent in 2008-09.
The economy continues to face wide-ranging
challenges— from improving its social and physical
infrastructure to enhancing the productivity in
agriculture and industry and addressing
environmental concerns. Meeting these challenges
will be critical for improving India’s social and human
development indicators and the quality of life.
1.67 At the same time, the Indian economy has
shock absorbers that will facilitate early revival of
growth. First, the banks are financially sound and
well capitalized. The foreign exchange reserves
position remains comfortable and the external debt
position has been within the comfort zone. The rate
of inflation has since abated and provides a degree
of comfort on the cost side for the production sectors.
Agriculture and rural demand continue to be strong
and agriculture production prospects are normal.
1.68 While there are indications that the economy
may have weathered the worst of the downturn, in
part, due to the resilience of the economy and also
various monetary and fiscal measures initiated during
2008-09, nevertheless, the situation warrants close
watch on various economic indicators including the
impact of the economic stimulus and developments
taking place in the international economy. Taking
policy measures that squarely address the short-
and long-term challenges would help achieve tangible
progress and ensure that the outlook for the economy
remains firmly positive. Chapter 2 highlights some
of these challenges, policy options and prospects
for the Indian economy.
 Key indicators
Item Units 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
1. GDP and related indicators
GDP (current market prices) Rs. crore 2754620 3149407 3586743 4129173 4723400 5321753 RE
Growth rate % 12.2 14.3 13.9 15.1 14.4 12.7
GDP (constant market prices) Rs. crore 2402727 2602065 2844942 3120029 3402716 3609425
Growth rate % 8.4 8.3 9.3 9.7 9.1 6.1
Growth of GDP
(factor cost, constant prices) % 8.5 7.5 9.5 9.7 9.0 6.7
Savings Rate % of GDP 29.8 31.7 34.2 35.7 37.7 na
Capital formation (rate) % of GDP 27.6 32.1 35.5 36.9 39.1 na
Per cap NNP
(factor cost & current prices) Rs. 20871 23198 26003 29524 33283 37490
2. Production
Foodgrains Mill tonne 213.2 198.4 208.6 217.3 230.8 229.9 ^^
Index of Industrial production
(growth) Per cent 7.0 8.4 8.2 11.6 8.5 2.6
Electricity generation
(growth) Per cent 5.1 5.1 5.2 7.3 6.3 2.7
3. Prices
Inflation (WPI) (52-week average) %change 5.5 6.5 4.4 5.4 4.7 8.4
Inflation CPI (IW) %change 3.9 3.8 4.4 6.7 6.2 9.1
4. External sector
Export growth ( US$) %change 21.1 30.8 23.4 22.6 28.9 3.6
Import growth (US$) %change 27.3 42.7 33.8 24.5 35.4 14.4
Current account deficit (CAD) / GDP Per cent 2.3 -0.4 -1.2 -1.1 -1.5 -4.1 ^
Foreign exchange reserves US$ bn. 113.0 141.5 151.6 199.2 309.7 252.0 @
Average exchange rate Rs./ US$ 45.95 44.93 44.27 45.28 40.26 45.99
5. Money and credit
(M3) (annual) %change 16.8 12.3 17.0 21.3 21.2 18.4
Scheduled commercial bank credit
(growth) %change 15.2 30.7 37.0 28.5 22.3 17.5
6. Fiscal indicators (Centre)
Gross fiscal deficit % of GDP 4.5 4.0 4.1 3.5 2.7 6.2 ##
Revenue deficit % of GDP 3.6 2.5 2.6 1.9 1.1 4.6 ##
Primary deficit % of GDP 0.0 0.0 0.4 -0.2 -0.9 2.6 ##
7. Population Million 1072 1089 1106 1122 1138 1154

RE GDP figures for 2008-09 are Revised Estimates

na not yet available / released for 2008-09
^^ for 2008-09 the figures are the 3rd Advance Estimates
^ CAD to GDP ratio for 2008-09 is for the period Apr-Dec 2008
@ as of March 31, 2009
## fiscal indicators for 2008-09 are based on the provisional actuals for 2008-09